Common Sense Guidelines for the Average Trader
Look for a reputable broker
- Ability to trade effectively depends on consistent spreads and ample liquidity
- Anyone can establish a position
- Ability to close out a position at a fair market price is more important
- Apply prudent money management skills
- Avoid using excessive leverage that puts your investment capital at risk
- Always trade with a stop!
- Establish a trading plan before initiating a trade
- Set reasonable risk/reward parameters
- Don’t override your stops for emotional reasons
- Don’t react to price action – means don’t buy just because it looks cheap or sell because it looks too high, Have supporting evidence to back up your trade
- Don't punt( Punting is trading for trading sake without a view)
- i.e. JUBBS stops = stops at obvious levels and thus are more likely triggered
- In other words, don’t double up in the hope of recouping losses unless it is part of a broader trading strategy
- When trading with a trend, consider the use of trailing stops.
- When trading against the trend, be disciplined taking profits and don’t hold out for the last pip
- Don’t base success on one trade
- Avoid emotional highs or lows on individual trades
- Consistency should be an objective
- Watch crosses as they are key influences on spot trading
- Crosses are one currency vs. another, such as eur/jpy (euro vs. jpy) or eur/gbp (eur vs. gbp)
- Crosses can be used as clues for direction for spot currencies even if you are not trading them
- Be cognizant of what news is coming out each day so you don’t get blindsided
- Beware of trading just ahead of an economic number and be wary of volatility following key releases
- Beware of illiquid markets
- Adjust strategies during holiday or pre-holiday periods to take into account thin liquidity
- Beware of central bank intervention in illiquid markets
Jay Meisler, a partner in Global-View.com, says one problem of trading with too-high leverage is that one piece of surprise news can wipe out one's capital. "Those who treat forex trading as if they were in a casino will see the same long-term results as when they go to Las Vegas," he says, adding: "If you treat forex trading like a business, including proper money management, you have a better chance of success." …Newsweek International, March 15, 2004
Treat this business as a marathon and not a sprint so you avoid burnout and maintain stamina for the long haul.
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